Haymount Urgent Care PC v. GoFund Advance, LLC
| Decision Date | 27 June 2022 |
| Docket Number | 22-cv-1245 (JSR) |
| Citation | 609 F.Supp.3d 237 |
| Parties | HAYMOUNT URGENT CARE PC ; Robert A. Clinton, Jr.; Indigo Installations, Inc.; and Christopher A. Turrentine; et al., Plaintiffs, v. GOFUND ADVANCE, LLC; Funding 123, LLC ; Merchant Capital LLC ; Alpha Recovery Partners, LLC; Yitzchok ("Isaac") Wolf; Josef Brezel; Joseph Kroen; and Yisroel C. Getter, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Agatha Christina Mingos, White and Williams LLP, New York, NY, Rachel J. Eisenhaure, Kenney & Sams, P.C., Southborough, MA, Shane R. Heskin, White & Williams, LLP, Philadelphia, PA, for Plaintiffs Haymount Urgent Care PC, Robert A. Clinton, Jr.
Rachel J. Eisenhaure, Kenney & Sams, P.C., Southborough, MA, Shane R. Heskin, White & Williams, LLP, Philadelphia, PA, for Plaintiffs Indigo Installations, Inc., Christopher A. Turrentine.
Conor Eric Brownell, Lippes Mathias Wexler Friedman LLP, Albany, NY, John Albert Mueller, Lippes Mathias LLP, Buffalo, NY, for Defendants.
This is a putative class action alleging that defendants make allegedly fraudulent and usurious loans and then engage in abusive collection tactics. The defendants are companies and individuals engaged in the "merchant cash advance" ("MCA") industry. MCA agreements are financial products, often marketed to small businesses through high-pressure sales operations resembling "boiler rooms," that purport to purchase at a discount a portion of a business's future receivables. The plaintiffs here are two small businesses (a North Carolina urgent care facility and a Texas construction contractor) and their principals that entered into MCA agreements with defendants that they have since come to regret. Plaintiffs’ amended complaint, ECF 22 ("Complaint" or "FAC"), brings claims sounding in RICO, racketeering conspiracy, breach of contract, § 1983, and fraud.
Now before the Court is defendants’ motion to dismiss all claims other than the breach of contract claims. ECF 68 ("Mot."). The Court has carefully considered the parties’ briefing and the presentations of counsel at oral argument. As explained further below, defendants’ motion to dismiss is granted in part and denied in part.
Specifically, the motion is granted in part with respect to the declaratory judgment claim, which is dismissed against all defendants except GoFund Advance, against whom only the aspect of the claim concerning the validity of the Indigo settlement may proceed. The motion is also granted in part with respect to the fraud claim, which is dismissed against all defendants other than GoFund Advance, against whom only the aspect of the claim concerning allegedly fraudulent electronic bank transfers may proceed. The motion is otherwise denied. With this motion resolved, the Court also lifts the stay of these proceedings previously imposed, and the parties are directed to follow the procedures set forth in the conclusion of this Opinion to develop a new case management plan that will move this litigation expeditiously toward trial.
The MCA transactions here at issue relate to purported purchases of a portion of the plaintiff merchants’ receivables in exchange for up-front payments. The MCA agreements specify a purchase price to be paid by the MCA company to the merchant, an amount of receivables purchased, the percentage of the merchant's total receivables that the purchase purportedly represents, and a daily "remittance" amount. See, e.g., ECF 69-2 at 3.2 The merchant is obligated to pay that daily remittance amount through an ACH bank transfer unless the amount is adjusted. Id. The owner of the merchant company is also required to sign the agreement in his personal capacity as a "guarantor." Id.
The first page of the agreement includes the following statements under the heading "Purchase and sale of future receivables:"
Merchant is selling a portion of a future revenue stream to GFA at a discount, not borrowing money from GFA, therefore there is no interest rate or payment schedule and no time period during which the Purchased Amount must be collected by GFA. The Remittance is a good faith estimate of Purchased Percentage multiplied by revenues of Merchant. Merchant going bankrupt or going out of business, or experiencing a slowdown in business, or a delay in collecting its receivables, in and of itself, does not constitute a breach of this Agreement. GFA is entering this Agreement knowing the risks that Merchant's business may slow down or fail, and GFA assumes these risks based on Merchant's representations, warranties and covenants.... Merchant and Guarantor are only guaranteeing their performance of the terms of this Revenue Purchase Agreement, and are not guaranteeing the payment of the Purchased Amount. The initial Remittance shall be as described above. The Remittance is subject to adjustment as set forth [herein].
ECF 69-2 at 3. The MCA agreement also includes a "reconciliation" provision that purports to result in adjustment of the daily remittance amount. This provision states, in relevant part:
As long as an Event of Default, or breach of this Agreement, has not occurred, once per calendar month Merchant may request a retroactive reconciliation of the total Remittance Amount (for the purposes of this Agreement "total Remittance Amount" shall be defined as all payments made by Merchant to GFA after GFA remitted the Purchase Price to Merchant). All requests hereunder must be in writing to eric@gofundadvance.com within five (5) business days of the close of the calendar month. Said request must include copies of all of Merchant's bank account statements, credit card processing statements, and accounts receivable report if applicable, for the requested month. GFA retains the right to request additional documentation such as bank login ... to view Merchant's accounts, refusal to provide access shall be a breach of this Agreement and GFA shall have no obligation to reconcile. Such reconciliation, if applicable, shall be performed by GFA within five (5) Business Days following its receipt of Merchant's request for reconciliation by either crediting or debiting the difference back to, or from, Merchants Bank Account so that the total amount debited by GFA shall equal the Specific Percentage of the Future Receipts that Merchant Collected from the date of this Agreement up to and including the date of the Reconciliation request.
The MCA agreement also provides GFA with various "Protections Against Default," should various listed events occur, including collection of the "full uncollected Purchased Amount plus all fees ... immediately," enforcement of the "Limited Personal Guaranty of Performance against the Garantor(s)," and "execut[ion] [by GFA] in the name of the Merchant [of] a Confession of Judgment in favor of GFA in the amount of Purchased Amount stated in the Agreement." ECF 69-2 at 5 (§ 1.13). For okaintiffs Haymount and Indigo, the personal guaranty was executed by their principals, also plaintiffs here. See, e.g., ECF 69-2 at 9. The MCA agreements state that "[s]aid Guarantors will be jointly and severally liable to GFA for all of GFA's losses and damages, in additional to all costs and expenses and legal fees associated with such enforcement." ECF 69-2 at 6 (§ 3.2). As for the "confession of judgment" protection, the MCA agreement states in part:
Each and every merchant, endorser guarantor and surety of this agreement, and each other person or entity who may become liable for all or any part of this obligation, hereby acknowledge that the transaction of which this agreement is a part is a commercial transaction, and to the extent allowed under Connecticut General Statutes sections 52-278a to 52-278m, inclusive, or by other applicable law each and every merchant, endorser and guarantor of this agreement hereby waive (a) all rights to notice and prior court hearing or court order in connection with any and all prejudgment remedies to which FCG hereof may become entitled by virtue of any default or provision of this agreement or security agreement securing this agreement and (b) all rights to request that FCG hereof post a bond....
ECF 69-2 at 7 (§ 4.13). Finally, the MCA agreement also includes a security agreement, permitting UCC lien notices to be sent to the merchant's banks and counterparties, freezing its accounts. ECF 69-2 at 8.
The MCA agreements also contain a fee structure document. It lists various large fees, including "Underwriting Fee: Minimum of $500.00 or up to 12% of the purchase price for underwriting and related expenses," and "ACH Origination Fee: Minimum of $500.00 or up to 10% of the purchase price to cover cost of Origination and ACH Setup." Id. at 10.
Haymount is an urgent care and primary care facility located in Fayetteville N.C. at which more than 100 employees provide medical care to approximately 300 people per day. FAC ¶¶ 87-88. Plaintiff Dr. Robert Clinton Jr. is Haymount's owner. See ECF 69-2 at 9. Haymount's financial position allegedly came under strain as a result of the COVID-19 pandemic, both because of additional costs (e.g., setting up a PCR lab, hiring additional staff, and purchasing supplies and personal protective equipment) and because of slow payments for care provided to uninsured and Medicare-insured patients. FAC ¶¶ 91-100. Haymount was therefore seeking additional financing to help it sustain operations with limited cash flows. FAC ¶ 101.
Haymount entered into the six MCA agreements with defendants GoFund Advance, Merchant Capital, and Funding123 summarized below:
Amount of Stated Stated Implied
Contract MCA Purchase Purchased Percentage Daily Interest
Date Entity Price Receivables of Revenue Remittance Rate3
8/25/21 Merchant $200,000 $275,000 45% $7,299 263%
Capital
8/26/21 GoFund $250,000...To continue reading
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Haymount Urgent Care PC v. GoFund Advance, LLC
...F.Supp.3d 237 (S.D.N.Y. 2022).[3] As relevant here, Haymount is a primary and urgent care facility in North Carolina owned by Dr. Clinton. Id. at 243. Haymount entered "merchant cash advance" ("MCA") agreements with defendants GoFund Advance, Funding 123, and Merchant Capital to fund its op......